U.S. equities rose in a second volatile session, paring initial declines to rise ahead of the conclusion of the Federal Reserves meeting on Wednesday where it is widely expected to raise rates by +0.50%, the largest increase since 2000.
The S&P500 finished +0.48% higher on Tuesday led by economically sensitive sectors with energy +2.87%, financials +1.26% and materials +1.12% leading gains. The Dow Jones also rose +0.20%, as did the Nasdaq Composite +0.22% and Russell 2000 +0.85% with the VIX falling -9.55% to 29.25. In further signs of a tightening labour market, U.S. employers saw a record level of job openings and workers quitting in March, with the number of available positions increasing to 11.5 million from 11.3 million the prior month, higher than the 11.2 million forecast by economists. Meanwhile, 4.5 million Americans quit their jobs in March, the highest level since the series began in 2000 suggesting the labour market may be tighter than the official unemployment rate suggests. The figures come ahead of Friday’s non-farm payroll data which is forecast to show +385k jobs were added in April and the unemployment rate edging lower.
Treasury yields were mixed with the 10-year yield briefly topping +3.0% before edging -0.8 basis points lower to 2.973%. The 2-year yield climbed +4.3 basis points to 2.774% while the 30-year declined -2 basis points to 3.012% and the U.S. dollar index dipped -0.27% to 103.459. The Fed is widely expected to raise rates on Wednesday and signal they’re on track to lift them to around 2.5% by the end of 2022 with investors closing watching for signals of how many 50 basis point increases to expect in the coming months.
European equities finished higher following a flash crash on Monday which sent shares lower. The Euro Stoxx 600 gained +0.53% led by energy +4.32% and financials +1.42% with the DAX also rising +0.72%, as did the CAC +0.79% and FTSE100 +0.22% with benchmarks higher across the region. While investors remain downbeat about the mixed outlook for growth, inflation and hawkish central banks, investors seem well-positioned ahead of the Fed meeting on Wednesday. With markets oversold, conditions suggest the decent probability of a technical bounce similar to March although selling pressure continues to emerge on rallies. In economic data, German unemployment for April was in line with estimates, declining -13k against estimates of -15k with the unemployment rate stable at 5%, while Eurozone unemployment for March declined to +6.8% from +6.9% previously, missing estimates for a slightly larger decline to +6.7%. The Euro gained +0.14% to 1.0522 and the Pound was little changed at 1.2495.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open higher this morning with ASX200 futures up +35 points or +0.48% to 7,320. The index weakened -0.42% on Tuesday weighed by materials -1.04% and financials -0.32% with the market selling off -0.50% following the RBA decision to raise interest rates by +0.25% taking the cash rate to +0.35%. The reaction suggests the market had mostly been expecting a +0.15% increase and the RBA flagged further increases in the coming months to bring inflation back down to its target range. The Australian dollar firmed +0.64% to 0.7095 following the decision with the 10-year yield jumping +13.6 basis points to 3.396% while futures pricing suggested the cash rate will finish 2022 at 2.88%, slightly higher than before the decision.
Oil prices weakened on Tuesday with both WTI and Brent crude down -1.69% and -1.52% respectively to US$103.39 and US$105.90. Iron ore futures in Singapore weakened -0.888% on Tuesday and are down a further -1.66% in early trade this morning to US$141.30. Gold rose +0.25% to US$1,867.70 while silver edged -0.30% lower to US$22.57 along with Bitcoin -1.84% to US$37,608.
Economic data:
- New Zealand Employment (QoQ Q1) 08:45
- Australian PMI (MoM Apr) 09:00
- Australian Retail Sales (MoM Mar) 11:30
- Eurozone Retail Sales (MoM Mar) 19:00
- U.S. PMI (MoM Apr) 23:45
- Fed Rate Decision 04:00
- Fed Press Conference 04:30
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
